This briefing provides guidance to insolvency practitioners considering whether to seek repayment on behalf of the company of dividends paid to shareholders. It addresses the legal requirements to be met before a dividend can be paid, under the Companies Act 2006 and the company’s articles of association, as well as at common law. It explains what can be done where dividends are found to have been paid unlawfully, and considers the limited circumstances in which the court will grant relief to shareholders who have received dividends in contravention of the law.
The Insolvency Service and the Department for Business, Innovation and Skills have published consultations proposing amendments to the regulations affecting insolvency practitioners (“IPs”), the practice of insolvency and the reporting duties of IPs regarding the conduct of directors.
When a limited liability company fails and a director of that business continues to trade under the same or a similar name after its failure there is often disquiet. This is particularly the case where the director is thought to have acquired the assets of the company at a knock-down price from the liquidator of the old company, despite the company leaving a raft of unpaid creditors.